This case involved a dispute between insurers and an insured over who had the right to control the litigation in a situation where the insurers had a subrogated claim but the insured also had an uninsured claim against the tortfeasor.

The losses occurred as a result of an explosion and a fire at an apartment building. The insured, an automobile dealer, was storing 71 cars in rented space in the underground parking lot of the building. The cars were damaged and could not be sold as new.

The insured made a claim and was paid $1.9 million under its insurance policy. The insurers were able to recover approximately $900,000 in salvage for the cars, and thus had a net subrogated claim of approximately $1,000,000.

The insured issued a claim against the tortfeasor for loss of profit in the amount of $700,000. The loss of profit was based upon the difference between the manufacturer’s price and the price for which the vehicles could be sold to customers.

The court found that the provisions of the insurance policy altered the common law and allowed the insurers to subrogate before “full indemnity” was paid to the insured. However, there was no explicit policy provision that allowed the insurers to control the litigation when the insured was not fully indemnified. As a result, the insured had the right to control the litigation until it had been fully indemnified for its insured and uninsured losses.

The court did leave open the possibility that in cases where an insurer’s interest was so vastly disproportionate to the insured’s that it would be unreasonable to allow the insured to have control of the litigation.

It should also be noted that it was argued that the insurers’ claim was for “hard” provable damages but that the uninsured claim was for soft damages (i.e. more difficult to prove). The court stated that there was no evidence before it to give merit to this argument.

Insurance Industry Implications:

1. In cases of insured and uninsured losses, in the absence of a policy provision that explicitly gives control of the litigation to an insurer, the insured maintains the right to control the litigation until it has been fully indemnified.

2. If an insurer wants to control the litigation before an insured has been fully indemnified, then it should amend its insurance policy language to provide for such.

3. The insured and insurer should try at the outset of the loss to work together and try to agree on such matters as legal counsel, sharing of costs, and procedures for resolving conflicts.

4. An insured’s right to control the litigation could be used as a bargaining tool when dealing with its insurer.

5. Where an insured controls the litigation, it still has a good faith obligation to keep the insurer informed concerning the status of the litigation and to consult with the insurer regarding the prosecution of the litigation.

A Financial Services Commission of Ontario (FSCO) arbitrator concluded that an insured was involved in an “accident” in accordance with Ontario’s Statutory Accident Benefits Schedule (SABS), when he fell while attempting to perform a handstand/headstand maneuver in a limo van. The arbitrator found that the vehicle was a “party vehicle.” She felt that the activities of the passengers were integral to the ordinary use of the limo bus. She did not conclude that the activity was so “off-beat” or extreme so as to remove it from satisfying the purpose for which the vehicle was used. At time of print this case was currently under appeal.

Insurance Industry Implications:

1. What is concerning about this case is the arbitrator states that what constitutes a party vehicle is “in the eye of the beholder” so this can open up a whole world of possible liabilities. It is difficult to know where to draw the line. We are concerned about the ramifications of an interpretation that broad.

2. Since this type of situation involves so much uncertainty as to what is insured and what isn’t, brokers might have difficulty giving good advice to an insured (e.g. a limousine company looking for coverage for party busses).

3. It may also affect the ability for brokers to find coverage for insureds operating this type of business because if there is so much uncertainty as to what is covered, an insurer may not want to take on that line of business.

The court held that liability arising from injuries sustained in a motorboat collision was excluded under the insurer’s homeowner policy. The court also held that the exception to the exclusion did not restore coverage for a motorboat with a 175 hp inboard engine. The insurer had no duty to defend.

Insurance Industry Implications:

1. This is significant because the court looked at what would be commercially reasonable as an exclusion, instead of just looking at the strict wording of the policy.

2. We feel this is of importance to brokers because when they place coverage, they should carefully review watercraft coverage when insureds own a boat. Brokers must make sure that if a policy doesn’t cover an insured’s watercraft, then they get the proper boat liability policy.

Ravinder Kumar Sharma brought a proposed class action that involved a common law negligent misrepresentation claim against the Timminco Ltd. defendants and also a statutory misrepresentation claim.

The plaintiffs stated that they had information about the insurance coverage available to some of the defendants in their proposed class action, but sought production of the policies. The plaintiffs asked the defendants to disclose any insurance policies that may provide coverage for the litigation.

The defendant responded that their clients would not agree to produce the policies at the early stage of the litigation unless ordered to do so by the court. The plaintiffs made a motion for the production of the defendants’ insurance policies relating to litigation and related information about coverage conditions.

The judge granted the plaintiffs this motion.

Insurance Industry Implications:

1. For the insurance industry, this case raises a concern of a potential practice to disclose insurance policies (particularly D&O) early in the litigation process.

2. As it relates to the independent insurance broker channel, brokers will have to be sure that they’ve got the right coverage for their clients. If there is a problem with such coverage it will be exposed and disclosed very early in litigation.